1. At the time the HPIC Initiative was being developed, some critics argued it fell short
and that the need for debt relief was obvious 10 years earlier. They believed that the
situation for some countries was so grim that the entire external indebtedness, not
just half, should be written off. Do you think the World Bank and the IMF should write
off the entire debt of countries? What are the pros and cons of this approach for debt
relief?
We think that World Bank and IMF can write off the entire debts of other countries because
technically they are not really against the debt relief initiative but both organization prefer to tie it
to certain conditions to somewhat appease both ways. And we respect that, there are specific
concerns that debt relief might be seen as a perverse reward for countries that lack financial
discipline. Both IMF and World Bank are reluctant to cancel debt if the country in question does
not have good governance or a credible government. In addition, they like to have a commitment
from the country to re-allocate the money saved to areas such as healthcare and education. Often
countries are also expected to initiate programmes of economic reform, such as cutting budget
deficits. Writing off the entire debts can procure benefits as well as disadvantages to both parties
involved. It must be pointed out that one of its cons is that taxpayers in wealthier, lending countries
will bear the full cost of debt forgiveness. They must take into account whether debtor countries
will be more willing to incur high levels of debt in the future, knowing that wealthier countries will
most likely bail them out once again. Thus, close monitoring and guidance through economic
reform could ensure that these economies do not fall back into similar debt trap.